Investments.

May 31st, 2016

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Everest University - North Orlando

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1. A three-month call option is the right to buy stock at $20. Currently the stock is selling for $22 and the call is selling for $5. You are considering buying 100 shares of the stock ($2,200) or one call option ($500).

Investments1JKInstructor Charles BensonInvestmentsDecember 20, 2015InvestmentsInvestments21. A three-month call option is the right to buy stock at $20. Currently the stock is sellingfor $22 and the call is selling for $5. You are considering buying 100 shares of the stock($2,200) or one call option ($500).a) If the price of the stock rises to $29 within three months, what would be the profits orlosses on each position? What would be the percentage gains or losses?$400 for the option, $700 for the stock, 80% for the option, 31.8% for the stock.b) If the price of the stock declines to $18 within three months, what would be the profitsor losses on each position? What would be the percentage gains or losses?-$500 option, -$400 stock, -100% option, -18% stock.c) If the price of the stock remained stable at $22, what would be the percentage gains orlosses at the expiration of the call option?-$300 option, 0 stock.d) If you compare purchasing the stock to purchasing the call, why do the percentagegains and losses differ?4. The price of a stock is $51. You can buy a six-month call at $50 for $5 or a six-month putat $50 for $2.a) What is the intrinsic value of the call?$1 - using the call option you can purchase 100 shares at $50 per share ( the strike price ) and sellthem at the market price of $51 a share thereby netting an intrinsic value of $1 per share.b) What is the intrinsic value of the put?Investments3$0 - the put option guarantees yo